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NEW YORK, Sept 1 (Reuters) - New York Governor David Paterson on Tuesday signed an executive order that will enable the troubled New York City Off-Track Betting Corp to file for bankruptcy as a municipality.
The order will allow the state-owned OTB, to file for Chapter 9, the part of the federal bankruptcy code that applies to municipalities and allows them time to restructure without being forced into liquidation, Paterson told a news conference.
New York State took control of the OTB from the city last July. In June, Paterson appointed Meyer Frucher head of the organization, which employs 40,000 people across the state.
Frucher ran the Philadelphia stock Exchange for a decade before it was sold to Nasdaq in 2007 and has held positions with the administration of former New York Governor Mario Cuomo.
A complete shutdown of the OTB would cost more than $600 million, Frucher told the news conference.
"A shutdown is unthinkable," he said.
Chapter 9 filings have been rare, with only 186 filings between 1980 and May 2008. The bulk of them were municipal utilities and special districts, according to data from Chapman and Cutler bankruptcy law expert James Spiotto. The biggest was Orange County, California, the sixth-largest U.S. county by population, which filed for bankruptcy in December, 1994. For more, see [ID:nN23315766]
The OTB was set up as a public benefit corporation in 1970 to raise money from pari-mutuel betting for New York City, the state and the horse-racing industry. In pari-mutuel betting, all bets of a specific type are pooled, with the house subtracting its "take" before paying the winners.
Despite taking more than $1 billion in bets every year, the OTB has been unable to cover its operating costs for years and has accrued liabilities of $220 million.
Adding to the gloom are unfunded liabilities of more than $500 million, most of it related to employee retirement, health and other benefits.
Under Chapter 9, the OTB will seek agreement with its lenders to submit to the court a prepackaged bankruptcy that includes issuing about $250 million in bonds.
The funds would be used to pay existing debt, manage pension and health benefit commitments and recapitalize the business, said Frucher.
The OTB is planning to overhaul its business model, renegotiate with its unions, upgrade technology and end leases at underused betting parlors.
"We want this to happen quickly because we will run out of cash some time between the end of December and end of March," he said.
Since its creation, the OTB has generated more than $4.5 billion for state and local governments and the horse racing industry, said Paterson.
New York state has more than 500 horse farms. The New York City OTB handles about half of the total amount of money bet on horse racing annually in the state, he said. (Reporting by Ciara Linnane; Additional reporting by Elizabeth Flood Morrow in Albany; Editing by Dan Grebler)